Mortgage and existing credit/debt

Lizlano1

Just after a bit of mortgage/ debt recommendations.

These are my current financial circumstances:

Salary £28,500 (I'm a teacher so this is guaranteed to increase each year - it will increase to £30,500 in September)
0 dependants
I currently own my flat and have a mortgage for £70,000 with C&G - the flat was valued this week at £155,000 so I will have approx £70,000-£80,000 deposit.
Looking to get a mortgage for £130,000-£150,000.

Debts - this is the biggest issue. My credit rating is fine, never defaulted, no CCJs etc, however I have a fair amount of outstanding credit. I recently retrained as a teacher meaning no salary for a year so was forced to use credit cards/ loans.

Credit card 1 - o/s balance £3000 (paying it off gradually but more than minimum amount)
Credit card 2 - 0% interest £5000 balance paying £200 a month.
Loan - with HSBC (who I bank with) £2000 remaining, pay £200 a month so will be clear by end of year.
Overdraft - £3750 - I don't use the full amount but regularly use the overdraft facility although have never exceeded it.
Store card - £500
Bed - interest free credit, £80 per month for another 2 years

Total debt approx - £16,170

My parents have recently given me £8500 towards clearing these debts but essentially, my question is, what to pay off first/ how to allocate this money so as to stand the best chance of getting approved for a mortgage.

Is this something that a mortgage advisor would be able to help me with? If so, does anyone have any recommendations for who to use in the Manchester area.

Many thanks in advance!

pjread

I expect all lenders would look at it differently. My personal gut feel would be;

1/ Don't go into your overdraft again. Ever. Keep a buffer in your account instead. OD's are usually expensive and using them can be perceived as indicating you can't manage your money too (not saying you can't, but if you can only see the numbers...)
2/ get rid of CC1 (assuming that's the next highest interest?)
3/ get rid of the store card (again, usually an expensive way to borrow anyway, and only a small balance)

leaves a loan with under a year to run, which I think wouldn't be seen as a massive issue by most lenders.

Depending on lenders' affordability calculations etc (are there 2 incomes for this mortgage?) it's potentially going to be best to settle the 0% card out of the sale proceeds too even if that's not overly 'efficient'. I expect a decent broker could help you out on that one.

Lizlano1

Thanks.

No the mortgage is only in my name...

It would ideally be joint with my boyfriend but he has a poor credit rating so for now, it's just me.

I was wondering about clearing things off with proceeds of sale, thereby reducing deposit... But wasn't sure if lenders even entertain this? Especially as the plan is to sell and buy at the same time.

Jhoney_2

pjread wrote: »

I expect all lenders would look at it differently. My personal gut feel would be;

1/ Don't go into your overdraft again. Ever. Keep a buffer in your account instead. OD's are usually expensive and using them can be perceived as indicating you can't manage your money too (not saying you can't, but if you can only see the numbers...)
2/ get rid of CC1 (assuming that's the next highest interest?)
3/ get rid of the store card (again, usually an expensive way to borrow anyway, and only a small balance)

leaves a loan with under a year to run, which I think wouldn't be seen as a massive issue by most lenders.

Depending on lenders' affordability calculations etc (are there 2 incomes for this mortgage?) it's potentially going to be best to settle the 0% card out of the sale proceeds too even if that's not overly 'efficient'. I expect a decent broker could help you out on that one.

Couldn't agree more.

kingstreet

Card/overdraft debt typically sees a mortgage lender take 5% of the balance as the amount factored into affordability.

£10k on a card = £500 per month off what you can put to what you can borrow.

A case on my desk as we speak sees affordability drop by £67,000 for a £10k card debt.

Jhoney_2

The experts will be along, but I think any debt really impacts on what figure they lend so, rather than an extensive surplus in your bank account, you may be better off removing these factors from the equation asap - but still keep an essential buffer!

Jhoney_2

kingstreet wrote: »

Card/overdraft debt typically sees a mortgage lender take 5% of the balance as the amount factored into affordability.

£10k on a card = £500 per month off what you can put to what you can borrow.

A case on my desk as we speak sees affordability drop by £67,000 for a £10k card debt.

See what I mean!

Thrugelmir

Lizlano1 wrote: »

Debts - this is the biggest issue. My credit rating is fine,

Total debt approx - £16,170

Take those RTG's off. Little point in fooling yourself.

Lizlano1

Thanks for the replies - apologies, what does RTG mean?

I'm obviously going to use the £8500 to clear as much of outstanding amounts as possible, starting with reducing overdraft to 0.

Obviously, whichever way you look at it I will still have £8000 outstanding debt which will limit affordability. I get that. So - is it possible, when applying for a mortgage to say that that £8000 will be cleared when my flat is sold and therefore not have them take it in to account when working out affordability? Or is that not something lenders do?

Thanks again

ViolaLass

Lizlano1 wrote: »

Salary £28,500 (I'm a teacher so this is guaranteed to increase each year - it will increase to £30,500 in September)

No it isn't (performance-related pay).

WillyWonga

Lizlano1 wrote: »

Thanks for the replies - apologies, what does RTG mean?

Rose Tinted Glasses:think: